#43 - Fixed vs Variable Expenses

Hey, guys and girls, this week we're going to dive into the weeds of our finances. So we're going to talk gross profit, cost of goods sold, expenses. Huge disclaimer. Jeff and I are not accountants.

No, no. We do not pretend to be in any situation.

We are not CPAs as well. Hire a good firm for that. But I think this week, Jeff, we're going to get into the weeds just a little bit. In the next couple of weeks, we're going to evolve this discussion. Any questions you all have, please reach out to us. Welcome to the Independent Dealer podcast, the.

Podcast for auto dealers to learn and grow together.

Here are your hosts, Luke Godwin and Jeff Watson. All right, guys and girls, this week we're going to. We're going to try to really start talking about what does income look like, what does cost of goods sold look like, and what do our expenses look like? I think that we all get lost in selling the car, making money, and really forget about the backside of it. Don't you think, Jeff?

Yeah, I think that's the number one thing that came to mind for me was I just think that we got a, you know, we're going to take you guys down a path this week, next week, and kind of do some financial calisthenics. Let's do some exercises. Let's see what it looks like. You know, what are our cars costing us? You know, what are we selling them for? What is our gross profit? What is our, like Luke said, our variable expenses, what are our fixed expenses? What does it really cost us to sell a car?

And mainly, are we making money?

Right? Yeah, but that changes. You know, I think we get caught in our minds where it's like, oh, it cost me eighteen hundred dollars to sell a car. And we get that number stuck in our head. Like, I can't let a car go unless I'm making at least eighteen hundred dollars to break even. But that changes as volume goes up.

Yep.

So a lot of people have got to understand that. So help us out, Luke. Get us started here. What do we need at first, and I know we're going to simplify this because we want everyone to kind of be able to compare apples to apples. And that'd be my disclaimer to this whole conversation, is there's a million different ways to do this. We all have different business models. Some of us have in house recon. Some of us get everything frontline ready. Some of us buy nice cars that just don't need any work. So help us understand as we go down this Exercise. What are we talking about when we talk about income and cost of car? Because those are your two top line items on your P and L, Right?

So yeah, so let's talk about income to start with. You know, a lot of people will say income, and when you talk about income, let's talk about gross money coming into the dealership. Right? That's what we need to be talking about. We're not. When we're talking about income, the top part of our P and L, we aren't talking about what's taken out of that. We're talking about what's coming in. So in the car business, you've got several, you know, depending if your retailer buy here, pay here. So let's just look at retail real quick. So what we have is that top line number of income should be what we sell the car for. Right. So let's just work on round numbers. I sold 20 cars last month and I sold them all for $10,000. That income there is $200,000. Right, Jeff?

Okay.

All right. What else can we do that generates that income if I'm just a retail dealer? Well, I've got wholesale cars because in theory I probably took in some trade ins. Right?

Okay.

So I've got wholesale cars that I've sold out. So that needs to be added to your income as well. Okay. And then hopefully I'm selling some back end products, some F and I products. Right. So I need to add that in as well. So I've got what, the top line number of the car soles, the gross car sales. I've got the gross wholesales and I've got the gross F and I product sale. Right, okay.

All sources of income, everything that's coming into your dealership by cash, check, money order, credit card, carrier pigeon, everything coming in, that's a dollar amount, right?

Yeah. And if you have a service department, it would be all of your service income, man.

Yeah, that's a whole nother ballpark for sure.

So that's my gross income, Right.

Wholesale cars. Did you meant, you mentioned that? Right?

Wholesale cars.

Yeah. Okay.

You did some trade ins and all that.

Yeah. So if I send my scraps to the auction, it's still in account for that, right?

That's right.

Now help me out and maybe can I go down this road real quick because this has always been a point of contention for me and this might be a rabbit hole we don't want to get. When I'm calculating which we're going to do probably next week, when I'm calculating my Cost to sell a car. Should I be taking out those wholesale or scrap car sales, not accounting for them, because I sell stuff on what we call our cash cars, which are basically $500 thousand junkers that are just. Or maybe we send them to the scrapyard. Right. I mean, those aren't really. I mean, I'm break even or I lose $1,000 on each one. So if I'm bringing those numbers isn't going to skew it.

I base, I base everything on retail car sales. So I add the wholesale money in there. And honestly, I don't make much on wholesales. And I probably end up at the end of the year, maybe net loss a little bit, depending if I've written the inventory down or whatever. But typically, just in my business model, there's a lot of people out there that do make plenty of money wholesaling. And you might want to look at those two things separately. You may say, okay, what are my expenses on the wholesale side? What are my expenses on the retail side? You may want to. If you really have a wholesale operation, you may want to break that out.

Okay, okay. Because we know those can skew your numbers quite a bit. Because it is an expense you need to track. Because that situation where your buyer or yourself are bringing in a bunch of bad cars and you're wholesaling them out the back and taking some massive losses, that's going to affect you. So do track that within its own bucket. But maybe for the sake of argument, we talk about just retail sales.

I think so, because I think the wholesale, if you're, if you're, if you don't have a real wholesale operation and you're not making a lot of bad choices in your buying decisions, and hopefully you're not. And I think today with PSI and things like that, you're probably making a lot less bad decisions. I mean, we all make bad decisions, but that's neither here nor there. But the wholesale part of it, in theory, if you don't have a wholesale operation, should really even out at the end of the year. Right. There shouldn't be really any huge gains and there shouldn't be any huge losses because you may get a huge gain on one car and you may get a huge loss on another, trade in. And it evens out over time. So we won't necessarily look at that. But the other thing is. So that's a retail operation. So if we talk about a buy here, pay here operation, you've got a couple more streams of income that you should talk about as well. Interest income. We all know what that is. If we are in the buy here, pay here business, we are charging interest on that loan. And honestly, that would be a huge number depending on how many accounts you've got. But it could be, you know, for some people it could be north of a million dollars a month, you know, depending on how many accounts they have. That's a lot of accounts, don't get me wrong. But we also have late fee income and we also have miscellaneous fee income as well as charge off recovery income. So those are the couple things that, that you have in the buy here, pay here side that you wouldn't necessarily have in the retail side. So if you're in the buy here, pay your business, think about that. Those are your other income situations. Does that make sense?

Yeah, absolutely. For the sake of this example, what do you say we leave the buy here pay here out of it? And that could be a follow up because it's such a beast, you know, if we start talking about discounts on your notes and then your, you know, deferred revenue income, that gets into a whole mess there for sure.

So I had, I had accounting all under wraps a few years back until we decided to open RFC and it threw a monkey wrench into everything. I had to, I had to relearn it. It was just.

So if we're taking all of our incomes in everything that we brought in the front door, sales, F and I products, you know, any kind of maybe processing fees that we charge on credit cards or whatever, and then what do we do with it? We got a bottom. We got a total income for the month. We're gonna have to subtract out some expenses, right?

That's right.

Cost of car goods.

You've got cost of goods sold, which is one, and you got expenses. So the cost of goods sold, what we're gonna talk about right in a second would be your make ready expense. The what? Your inventory cost, your recon expenses. Now some people add the recon expenses into the inventory, which I do. Are you giving a service? I mean, are you giving a warranty on the car? That would be part of your cost of goods sold. And some people, depending on how you break it out, some people would have an allowance for trade in as well as a cost of goods sold. That might be the way somebody looks at it. May not be. There are different ways to skin this cat. But your big cost of goods sold is the cost of your inventory plus recon, plus make ready expense. Okay?

And any F and I product costs. Right?

Any F and I product cost.

And then. And where do we bring in sales tax tags, licenses, registrations?

Well, that shouldn't be a call. You would say that shouldn't be a cost of goods sold because your. Your customers paying for it. What I tend to do on that is I make a. On the balance sheet, I have a liability that. That goes to, so I can pay it out of there. It's not really a cost of goods sold. Okay, now, you may argue that differently.

Right, Right.

You understand the cost of good souls, right, Jeff?

Yep.

Yeah.

Yeah, I think so. And for the sake of this conversation, guys, we're gonna talk. When we say cost of goods sold, we're gonna wrap in everything that takes you from purchase of car to frontline, because all of us have different operations. Some of us have service shops. Some of us purposely seek after project cars because we know we have a ton of service mechanics and a body shop that can get some value there. Others of us buy frontline ready only units. So we have zero in recon, so to speak. So for the sake of this discussion, Luke, let's just say cost of goods to get it to the front line. That's right.

Let's just say that it's. We buy the car. That's the cost of the car. Let's say we got transportation added into that. Let's say we have the recon. We have. And we have body work. We have all this. So that's where we are. So your cost of goods sold. I'm sorry, Your. Your overall income minus your cost of goods sold will give you the gross profit for the month, right?

Mm.

So let's sell it. Let's go back to. We sold 20 cars at $10,000 apiece.

Mm.

Add $200,000 in total income.

Mm.

Well, we paid. And after getting everything ready, after the cost of.

Let's.

Let's say we had. Let's say those cars cost us $150,000, right? Mm. And we're spending. Let's use some decent numbers here. We are spending. We're spending $700 a car. Get ready. Right.

Okay.

That was $14,000 plus 150. We're at $64,000. $164,000 in total cost of goods. Right.

Okay. Works for me. Okay, so we have cars. 164,000. I sold them for 200,000.

That's a gross profit of $36,000. Okay, so that means I made $36,000, right?

No, no, it doesn't mean you made $36,000. That means you Got a top line gross profit of $36,000.

Oh, man. Why not? I thought I made. I thought I made $36,000. So that gives it. That gives us $1,800 gross per car, Right. So we better be running a lean operation, right? Yeah, yeah, yeah.

That scares me.

That scares you, huh? What does it cost you to sell a car?

That's a good question, Luke. What does it cost me to sell a car?

So that's where our expenses come in. What does it actually cost us to sell a car?

Okay.

All right. So we have fixed expenses and variable expenses, right, Jeff?

Okay. And a fixed expense for. The conversation that we're going to go into today is anything. We're going to take this on a very short timeline. So for the month, any expenses that you would have, regardless of how many cars you sell, if you sold one car, you're still gonna have to cut a check for a fixed expense. If you sold a hundred cars, that check wouldn't move much. And so these are what, Luke? What is what? Give us examples of fixed expenses.

Number one is rent, right?

Yep.

Number one is rent. So we've got to cut a check for rent. You know, probably. I would think the average person out there is paying rent anywhere from, you know, probably on the low side of two grand a month, up to $20,000 a month, depending on the size of your operation. So we've got rent and we've got utilities. We got to keep the lights on, right?

Yeah, yeah. I mean, my lights are on. My AC is going regardless of whether I sold one or a hundred last month.

You know, and we also have telephones. We got to answer the phone calls when they come in, right?

Yep.

Yeah.

I would argue that if I got phones for five guys, that's gonna be an expense regardless of how many they sell.

That's right. So insurance as well, you've got to have, you know, dealer insurance. So that's gonna be an expense we've got every month, no matter if we sell or not.

Mm. And some of these, again, you guys, some of these will change over the long term. You know, if you're Talking about a 12 month period, yeah, those are gonna. They're going to fluctuate, but for the sake of this conversation, within that 30 day window, they're going to be the same.

So if we're. If we're. If we're at $36,000 of gross income and we just take out our fixed expenses, let's just say that person's paying $2,500 a month for rent, we're down to 33. 5. Right. So then we're probably paying, let's say, $500 in utilities. We're down to $33,000. And we're paying $400 for phones. We're down at 32. 6. I made 32 6. Right, Jeff?

Well, I would say, I mean, there's probably a couple other fixed expenses. We talked also about, you know, accounting. Right.

That's right. So. And I forgot to put the insurance in there. The insurance probably cost you $1,000 a month. And legal and accounting. What are you. What are you figuring on that?

I mean, not much. Yeah, 500 bucks. If you have an outside accounting service, whether they're adding up $2 or adding up 200,000, you're still going to pay them. And it'll fluctuate a little teeny bit. But for the sake of argument, okay, where does that leave us?

We're down to 31 1.

Okay.

Okay. So now we have to start adding up our variable expenses. And this is. There's so many different variable expenses. I think we're going to try to take those as a, you know, as a. Almost a whole podcast, really, talking about expenses. But variable expenses, you know, range to board, and these fluctuate. Let's talk about what a variable expense is, Jeff. If I'm selling, you know, 10 cars a month, my variable expenses for the whole dealership might be $15,000. Because I have small staff. I'm not advertising a ton. We're not using a lot of office supplies. Maybe I'm not going to a lot of training sessions like I do. You know, I may not even take credit cards. I may not have any processing fees. My floor plan interest is really low because I don't have much on floor plan. My bank fees are minimal because I don't have a lot of transactions going through there. And my policy expense, you know, is not going to be that high because I'm not selling a lot of cars.

Right. Okay.

But if I'm selling a lot of cars, I'm selling 50 cars a month. If I go from selling 10 to 50, that thing's going to jump up kind of quickly. Right. Is it going to increase by a magnitude of 5 or how is it going to increase?

You know, I mean, I would imagine in my brain a variable expense is going to increase variable with the amount of units you're selling. Right, Right.

It's not gonna be directly proportional, but it, you know, you can. At what point does it. Does it quit rising? I Guess would be the question. Right.

Mm.

And that's what we try to all want to figure out. And maybe. Maybe there's not an exact way to do it without experience. I don't know that answer.

So you're talking about those expenses that are. You're going to gain an advantage on basically the economies of scale. Like, where do you get to the point where I sell 20 cars and it doesn't cost me anymore to sell an additional 10 and get to 30 necessarily.

And it probably won't. But that jump. But that jump from 30 to 50, I think you'd see a significant rise in your. In your cost. But, you know, there's people talking this week on the. Or last week on them, the Facebook page about, you know, how many people does it take to sell a certain amount of cars? And I think, you know, the biggest expense most of us have in a dealership is pretty simple. It's advertising and staff. Right?

Yeah. Personnel, for sure.

That's it. So the key is, how can I increase sales without advertising anymore?

Right. Okay.

And how can I increase sales without having any more people or actually people who cost me money? You know, if you're on a. If you're on commissions, another salesperson shouldn't really cost you any more money beside payroll taxes and maybe insurance.

Okay.

But that's it. So how do we figure out where that. That number is? So if I'm a small dealer and it's just me and I'm selling cars for $1,800 a month, I don't have a huge expense any which way, then I might be fine to sell 20 cars a month, make, you know, $20,000 a month. That's pretty good living, right, Jeff?

Oh, yeah, yeah. Works for me.

Works for me. So. But if I decide that, hey, I'm working way too much and I gotta hire a salesperson, then I cut down that 20 grand, but it might increase my sales as well. So you've got, you know, it's very important to look at these variable expenses and know what your fixed expenses are, and to look at your variable expenses and see, does it make sense to sell more cars? Because there are cases where it doesn't make sense to sell more cars. That sounds crazy, right?

It does. Yeah.

Because selling more cars could cost me more money.

Okay.

I don't know if anybody out there will even come close to believing that, but I can tell you it happens. Because if you sell more cars and you have to increase your bottom line.

Yeah.

I mean, not your bottom line, but you have to increase your expenses to sell five more cars when it may not balance itself out. So you may have to keep those expenses level and figure out how to sell 15 more cars to actually see the revenue generation between those two or the net income. And that's another word we hadn't talked about.

Yeah, yeah, we haven't quite gotten there yet. So in this example, I'm going to back it up a little bit. So we have fixed expenses of about $250 per car. 20 car example. Now talk to me. What do you think the variable expenses would be and like per car sale, because that's something, you know. So if we talk about those kind of line items, maybe we can do some quick math for everybody on just the basics. Obviously, like you said, we've got personnel. Now tell me this, Luke. In your opinion, would you put all payroll into a variable expense or just sales commissions? Because we didn't really discuss that. From a fixed expense standpoint, you might have some fixed expenses on owners, management, you know, guys that get their salary regardless of how many are sold, you know, title clerks, receptionists. And then you've got the guys that do just get paid on commission per sale. Is that you put that.

So I think a portion of your salary probably is a fixed expense. You know, I would say that in this, you know, if we're selling 20 cars a month, I think you're going to probably need two people on staff. Right.

Probably yourself and on your operation.

Yeah, yeah, probably yourself. We're not talking about buy here, pay here. We're talking about me as, as an owner, operator, and let's say at least one more person. Right.

Okay.

So I'm going to need. I'm going to need at least a portion of my salary to be a fixed expense and a portion of that other person to be at fixed expense. So if I want to make ten grand a month, which I think that's probably a Little High, selling 20 cars, but, you know, whatever that number is, let's say it's 5,000amonth. And, and the other person, let's say, is two to $3,000 a month. But part of that's going to be a fixed expense because you've got to have those people to make the business work. Yeah, let's just, let's just take $7,000 of that and, and say it's, it's fixed expense. Okay, so that's our personnel fixed expense. And you've got portion of that is going to. You also need to figure in your payroll expenses, payroll tax expense for that. For that amount as well.

Okay. So you would tuck some of those. Some of those people into a fixed expense, and then you would look only at that variable expense for your commission people. You'd also talk about your advertising, right?

You talk about your advertising because it's gonna be big. Well, it may not be as big for 20 cars a month, but you gotta advertise something. You're not gonna. That's not gonna not be an expense you got.

Mm.

You know, unless maybe you're a broker or something. But I still think you're gonna have a little bit of advertising expense.

Okay.

You gotta. You gotta have a website, right?

Yeah, yeah. You got some digital stuff. You got some, you know, you know, things like that are gonna be out there. Your, you know, any kind of office supplies, health insurance benefits that you might give employees, I don't know, you know, referrals you paid out to bird dogs or something.

And you're gonna have some policy expense because every one of those cars you sell, something's gonna. Something's gonna break on them, right?

Oh, that's. Yeah, yeah, yeah. You might. You might be helping people out after the sale with things here and there.

I think I'm averaging something like almost $150 a car per sold or something. Craziness like that drives me insane. But you would think they'd go through your shop, they'd be ready to go, but they aren't ready to go, y'. All.

So in this example, what do you think a total variable expense would be? Let's just take a stab at it. So we kind of have a number to go off of.

I think you could probably say another. 250, 300 a car, I would think.

Okay, let's just use that. Let's just use a real simple number for everybody. Let's say you got another $250 in variable expenses per car sale. It seems low, but that's probably your commission in your advertising, you know, or website.

Well, yeah, we're not. I didn't even think about commission, so that's gonna be. We hired that.

Okay. Okay. So let's.

Because if you're. If you're. Let's just say you're going old school. $450 a car is what you would have been realized for that commission.

Okay.

Because if you're going 0.25%, 3.25 of $1800.

Mm.

Right.

Sure. Yeah. Sounds good.

So you're probably. You know, your variable expense is probably going to be probably $700 a car.

Okay, okay. Okay. So let's round that up.

Commission.

Let's round it up to 750 so that I can work with some even numbers here. Because we got 250 in fixed expense. We got 750 in variable expenses.

So we're at a thousand dollars a car.

We're at a thousand dollars in a 20 car example. Right.

Right.

Okay, so what does that mean for me as a dealer, as someone pricing my cars, as someone deciding whether I'm gonna cut something loose or not?

Well, I think. I think what it means is you really need to know your numbers. Number one.

Okay, so.

I know what you just asked, so let me go back to that. I always think a bird in a hand is better than. Than two in the bush. And I think if you. If someone offers you profit on a car, you probably should take it.

You think if you're in the black, accounting for your overhead or if we want to call this a pac fee, I mean, what's the difference there, I guess? Help me with that, Luke. In your opinion and the way you look at it, people that put packs on a car sale, on the cost of the car, you're just trying to.

You're trying to limit the salesperson's commission. That's all you're doing.

Yeah. You're trying to move some of that fixed and or variable expense onto the cost of goods sold so that you're taking a little slice out of that gross profit on the.

So, yeah, so what we do is if we had a, let's say, $500 pack per car in this situation, you are. You were cutting into that, you know, into that salesman's commission by. What is that number? $125 a car. That's what you're doing.

Yes.

So you're going from 450 down to 325 average commission. That's fine. And that's what everybody's always done, right? So that's fine. Pack's fine. But I think in general, if you have a car and someone offers you profit, I think it is a good idea always to sell that car. It might even make sense to sell it if someone's not offering you profit.

So where does that work out? So you're telling me it cost me $1,000 to sell a car, and I got an offer on a car that only gives me a $500 gross profit, I'm going to lose money. It might look like I'm making $500, but in the end of the month, I'm losing $500 to sell that car, right?

Well, no, because. Because of this, that $500 right now is better than negative 1500 two months from now. Right?

Okay?

So you got to know your inventory and you got to know if it makes sense for me to sell it. Now if I get a car in today that is a perfect car and I know what it's going to sell for and somebody offers me $500 profit, it probably doesn't make sense for me to do it. But you need to be the judge of that. You also got to look at the time because if it sits on the lot for three weeks and I've got holding costs, I've got all this. So it always my number one thing is if it makes money, sell it. Gross profit. If it makes gross profit, sell it.

Okay? And that helps to have a gauge on what your gross profit is. Right. So help me out here. You know, oftentimes we hear people say, well, I know my overhead is, you know, $2,000 per car, so I can't let anything go unless I'm making at least two grand.

Well, that's so silly.

You're losing money on that sale. Why would you sell that car cash instead of retail finance? You know, you didn't even break even on it after accounting for your overhead.

Because cash flow matters, number one. Cash flow matters. And holding costs on that car matters.

Okay?

There's never, in my opinion, now there might be other people that say differently. In my opinion, there's never a reason not to sell a two thousand dollar winner, okay? There's never a reason not to sell a thousand dollar winner unless you know that that car, you absolutely 100% stole the car. And it's, and it just got here, you know. Yeah, they're upset.

There's a under 30 days on your lot.

And you see that all there.

Now tell me this though. What, what I want to get at is people, when you look at a fixed expense, guys, I want you to understand the scale right now. If I sell 20 cars a month and it cost me a thousand dollars because of my fixed and variables when I start selling, If I sold 30 cars this month, now all of a sudden my variable expenses have dropped to the point where I only need to make $800 per car. So sometimes that volume is going to reduce your fixed expenses to the point where it makes sense to let cars go.

Right, Exactly. And that is very important. And I didn't address that, but. Right. So if I see that all of a sudden I can start moving those cars for less gross Profit. Then what happens? Then what happens is you.

Your fixes, background noise.

I know. I don't know why she's talking over there. I've asked her not to.

Luke needs a. Luke needs a remodel at his lot. If there's any contractors in South Carolina. A little module office in the back. So now I am no proponent of the V Auto philosophy, right. The whole velocity thing. And you buy these near new cars and you turn them within two weeks and you make 500 bucks up front on gross and you hope to make another thousand on back end products. And it's this volume churn thing because in my philosophy, right. That's just a race to the bottom. Well, you also about volume solves everything. And I don't think we need to go that far.

No, you can't outrun your volume. I mean your staff a lot of times can't outrun your volume. And that's what happens a lot of times. That story is that to sell a hundred cars a month, you gotta have a huge setup, right? You've got to have a big piece of property, you've got to have a lot of advertising, you've got to have a lot of staff, you've got to get those cars ready. I just don't think there's a way that you can make that work. And after a while, what's going to happen is some banks are going to pull out because maybe you had some defaults and this, that and other. Next thing you know, you've got all these, all these things going on and not enough profit. I've seen that happen a lot here. And just watching people, it just doesn't work. The only way I think to really, you know, again, you got to know your fixed expenses, right? And you got to know your variables. If you don't know them, you don't know and you can sell yourself right out of business.

That's. I think that's what we wanted to drive home with this episode, guys, was you've got to know your numbers. And so everybody sit down with your accountant or with your wife or whoever's helping you with your books. Look at it. Divide out those fixed and variable expenses, go back 6 12, 18 months, track it kind of trending and see where you're at on those. Because that's gonna help, you know, hey, you know what? My fixed expenses is so low, I really could sell more volume at less gross profit. And that's only gonna help me.

That's right.

I'm saying no to a lot of deals. I should be saying yes to because I think that they're too slim. And so now all of a sudden, I'm only selling 10amonth. And it's making the problem worse.

Yeah.

Because I'm not getting my volume up because I'm so stingy on trying to hold my upfront grosses.

And know what your holding cost is per day? Because in those holding costs, if it's costing you, let's say this, this particular person, what were you. What is it like? Holding costs would be somewhere in the neighborhood of. Well, let's say that person's keeping 40 cars in stock. You know, you're looking at about 12 to $14 a day. So that car for the sealing your lots will cost you $450 a month. Let's think about that, too. So these are the type of things you need to really know before you decide to. Yeah.

And, Luke, I can't always wrap my head around holding costs because I might be like some dealers who I say, well, I own all my cars. I don't have a flooring line. I don't have an interest expense. But what I can wrap my head around is opportunity cost. And that's something that I, in turn, and that's something that I try to help my guys understand, is that this car that sat here for six months, I should have turned that six times. Right.

Just think about it like this, Jeff. That car is a pile of cash, Right.

And I need to turn it into another pile of cash every time.

And if you're turning into 10% more than you did last time, if you do that, you know, for six months, that's a lot. That's a big return. So you've got to think about that. That car just sitting there doesn't does nobody any good. And I think I've said this before on the podcast, but this is something that Chuck said at the last 20 group, that really makes a lot of sense, and that is think about that car as well, producing $400 a month payment. So in the buy here, pay here business.

Yeah, yeah.

It really matters if that car is sitting for six months, not sold. It cost you $2,400, essentially, to sit there. So reducing the price, reducing the down payment may make sense in that scenario. So it's not just retail people we need. We need to talk about when it comes to holding costs. I see so many dealers go, oh, I've had that car for. I've had that car for a year. It doesn't matter. It didn't lose any money. It Didn't. It didn't eat anything. Yes. There's a reason that cost.

Well, that's what you look at and you say, okay, well, if my gross profit from this example is $1,800 a month, and if that car sat for six months instead of me selling it six times, in theory, I should have had a 30 day turn. I should have sold that same dollar amount six times. That's 10, 8 math to do, right? That's 10, $8, $1,800. That car cost me in lost opportunity, lost gross profit by just thinking that I could hold out a little bit longer. Hold out a little bit longer.

That's right. If you look at that in actual percentages, that's 100%.

Yeah.

Because that car cost me, in theory $10,000 or I sold it for $10,000. So it actually cost me more than 100% for six months. Actually, you know, APY is more like 200%. So we got to think about the way these things work. Even if I sold that car three times, if my turn is six times a year, it cost me $5,400. So you got to think about these things, guys. You know, one thing I want to back up that you, that I saw you post on a little thing, an independent dealer this week was talking about someone who was asking the difference between a C corp and an S corp and LLC and all these things. And you said something that everybody needs to listen to, and that is go find you a accountant, CPA that is in the car business that knows what they're doing because your local person probably doesn't know what they're talking about. And they can't teach you to do the things that honestly that we could teach you to do because we've been trained by automotive CPAs. So, you know, if your wife's doing your books, that's fine. I'm sure she's, she's great and she's wonderful, but she doesn't know what she doesn't know and it's not her fault. Yeah.

And it's, and it's not even. I mean, sure, keep doing it on the month to month. Do your own monthly reconciliations. I do that. I have a guy jump in quarterly and button it up. Right. Definitely filing your taxes. You know, that final tax return needs to be done by a professional auto cpa. I cannot tell you how long I went back and forth with my local guy for the first 10 to 15 years I was in business and every single year I felt like I would sit down and be like, well, what about this? And he didn't know enough about the car business to find the issues, and I didn't know enough about accounting to tell him the answers. So every year it was like a whole new freaking rodeo. We had to learn all over again because I had learned some piece of information that I relayed to him and I'm educating him on. I mean, geez, especially if you have an RFC that discounts. You gotta find a professional that is.

Yeah, that's pain. That's a definitely a topic for a different time. Hey, Jeff, I just want to. I'm gonna promote something real quick. If you don't go ahead.

Let's wrap it up.

NABD is coming up October 6th through the 8th, I think.

Yes, Chicago.

I am speaking on Tuesday, 2:15 to 3:00pm we're going to talk about time to line. Something I'm working on. I think everybody out there should be working on goes along with what we're talking about today. How to get your cars ready faster, how to create a process behind that. But if you're coming to nabd, come check us out. Jeff, you coming or no?

Yeah, yeah, I just barely booked. Again, we don't have anything to do with NABD or niada. We're not associated. What we want you guys to do is get educated. And of course we want to meet everybody, hang out, have a good time. So if you can get out to Chicago, make it happen. I mean, it's great education, right? I mean, this is specific to buy here, pay here. NABD is the national association of buy here, pay here dealers. Is that it?

Yep. National alliance of buy here, pay alliance.

Of Buy here, pay here dealers. Okay. So it's going to be very specific to buy here, pay here. So apologize to any of our retail or wholesale guys that are listening. But regardless, Luke's information is useful.

Yeah. Because this way is really, you know, it's at a buy here, pay your commerce. But the timeline is really important for retail dealers as well, if not more important. Also, I'm speaking the week before at Viada. The weekend before, I think that Saturday, I'm speaking on collections. So if you're a Virginia dealer and you want to come hang out and meet me and listen to a good collection seminar, please be there. I'm not sure how well it is attended at Viada, but Virginia dealers, come on out. I know there's got to be some of you out there.

Awesome.

Great.

Luke, this has been fun. I know we've gone on and on and this is a long one, but it's so important guys. Hopefully we brought some sort of value today to at least question your current practices and go talk to a CPA that's going to be able to get your books fine tune so you know what you're doing. Share this with a friend. You know, put it in a post, tag us. Appreciate the feedback. Hope you guys enjoyed.

Sam.